Zero to One - by Peter Thiel

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Zero to One is a book for anyone interested in innovative products and services. This book was written in 2014 and it goes through the experiences, philosophy and advice of Peter Thiel, one of the world's foremost venture capitalists. Thiel co-founded PayPal and was the first outsider to invest in Facebook. His unique approach to business will attempt to show you how to predict the future and make it a successful one for your start-up. Some of the things you will discover in this book are why monopolies are actually good for innovation and why your startup needs to go from "0 to 1," not "from 1 to n". 




Summary & Key Learnings


1. The Challenge of the Future

2. Party Like It's 1999

3. All Happy Companies Are Different

4. The Ideology of Competition

5. Last Mover Advantage

6. You Are Not a Lottery Ticket

7. Follow the Money

8. Secrets

9. Foundations

10. The Mechanics of Mafia

11. If You Build It, Will They Come?

12. Man and Machine

13. Seeing Green

14. The Founder's Paradox

Conclusion: Stagnation or Singularity?


The key learnings from this book:
A start-up's success is not a matter of luck. You can pursue the future you want as long as you're able to challenge established conventions. Then once you obtain a monopoly by being better at something than everyone else, success will follow on its own.

Actionable advice:
Dominate one niche at a time.

When you've found the unusual idea to base your start-up on don't go too broad too quickly. Find a small niche where you can do something better than any of your competitors. Once you've established a monopoly there you can expand to other markets later.


1. The Challenge of the Future

The introduction of the book begins with the question "What important truth do very few people agree with you on?" Thiel's approach for this question stems from the phrase, "Brilliant thinking is rare but courage is in even shorter supply than genius." Go from zero to one by building a revolutionary startup or constructing the future. When we talk about the future, we don't just think of the passage of time, but the progress made during that time. This progress, that is, the differences from the present, is what really defines the future.


More specifically, it can be divided into horizontal and vertical progress:


Horizontal progress comes from expanding on existing ideas and innovations. Here' globalisation is a common driver because it helps spread eixting ideas to more people.


Vertical progress, however, comes from creating something new that didn't exist before like a new technology or method.


Horizontal progress is going from one to n whereas vertical progress is going from zero to one. 


Example of horizontal progress would be mass-producing phones and distributing them to developing countries. An example of vertical progress would be building a smartphone from a regular one.


Vertical progress is hard to predict because you have to imagine something that doesn't exist yet. That's why you can only predict future progress is you're able to see the present differently. A person who can think outside established conventions can see and change the future.

Thiel ends the chapter by asking "Why Start-ups?" A start-up is the largest group of people that you can convince of a plan to build a different future. So how can you prepare for the different and unknown circumstances that await you in the future? Today, many people think indefinitely and try to prepare themselves for all possible future events. This approach is futile however, because the future holds far too many unknowns and variables. 

A more effective approach is making a focused effort to achieve the future that's best for you, thus becoming the architect of your own future. Success is the product of focus, dedication and determination. If success were nothing but a product of luck, we wouldn't see serial successes like Steve Jobs or Thiel founding several prosperous businesses. It's crucial to keep in mind when founding a start-up, startups only have one best future and attaining it demands a concerted effort. Why only one? Because a start-up will only be successful under very specific conditions: there's only one best market for the company's product, only one best time to launch it, and so on. In order to strike when the conditions are just right, you must make a conscious choice to pursue the future in question. The main difficulty likes in figuring out just what the ideal conditions for your start-up are. In other words, which future are you aiming at? When choosing your future, remember you can only see the future by looking beyond established conventions.


3. Party Like It's 1999

This chapter begins with summaries of certain time periods:


1. 1990 - Economical migration of investments in the USA "from bricks to clicks"


2. 1997 - Economical crash in Thailand


3. 1999 - Launch of the Euro


4. 1998 - 2000 - Dot.com mania


Paypal was created with a goal to create a new digital currency. As the idea evolved, the currency became a method for transferring funds via email. The concept was revolutionary. Many merchants swarmed to the new products as this technology allowed them to receive funds more efficiently compared to their former predecessors. The company shortly after build, learned a hack for cultivating new clients by using $10 incentives. This quickly gained enough traction to get significant funding in 2000 before the dot.com crash.



3. All Happy Companies Are Different

This chapter highlights the similarities and differences between happy companies and failing companies. 


"All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition."


"What valuable company is nobody building?" A valuable company is the summation of created value in addition to value captured. The main takeaway for aspiring entrepreneurs (who have the hope of changing the world for the better) with your company is that you must create and capture value. 


Thiel tries to distinguish the differences between a Monopoly (which he believes is not evil) vs a Perfect Competition (arguably dangerous for business vitality). Both companies are trying to disguise themselves as something else as well (usually the opposite to what they are).


When people hear the word "monopoly," they tend to think of large, evil companies unfairly squeezing out the competition. Thiel believes this is inaccurate. Conventional wisdom holds thta competition is the ideal economic stimulus, encouraging companies to improve on each others' product. However, it's actually monopolies that drive innovation. If you have a monopoly, it doesn't necessarily mean the competition is being treated unfairly. Rather, you're just doing something so much better than them that they can't survive. Similar, if you create something new that no other company can copy, it's not necessarily a bad thing.


Google clearly has a monopoly over the search-engine industry, having faced no competition whatsoever in the twenty-first century. This might seem unfair to other companies who'd like to compete, but it's certainly been good for everyone likes using Google's powerful search engine. Monopolies can drive progress, they encourage other businesses to come up with better solutions and oust the current dominant company. For example, if a company wants to compete in the search-engine market today, it needs to invent a better search engine than Google. It if does, it will be the consumers that benefit. Having a monopoly allows you to set your own prices, which in turn ensures high profits. If your product is no better than your competitors', you'll have to set your prices low to entice customers away from the competition, which erodes profit margins.



Firm A - disguised as a monopoly: Google has a monopoly on search but emphasises the small share of global online advertising, and other miscellaneous business models. 

Firm B - disguised as a perfect competition: A local restaurant 
to find fake differentiators by being the “only British restaurant in Palo Alto” yet they are using inaccurate metrics. The real marker would be “restaurants” not “restaurant type.”


4. The Ideology of Competition

This chapter describes the business world to be heavily analogous to war. MBAs often attribute their tactful success to the knowledge acquired from books such as “The Art of War”. The analogy is further supplemented by the metaphorical wartime language.

“Why do people compete?”
Marx model: Since we are inherently different and possess distinct goals, and
Shakespeare model: All competitors are more-or-less similar (ex: Montague vs Capulet)

Placing emphasis on the wrong attribute in business (like in war) can lead to the toxic realisation that the root problem truly lies in the similarities. For example, while Microsoft and Google were obsessively competing with each other Apple emerged and surpassed both.

This chapter referenced examples of Square competitors. This illustrated the negative consequences of competition. The act itself is likely to limit vision and focus energy on obsessive hostility. As a result, copying is promoted.


The best way to resolve conflict (competition) is to merge with your competitors. This is when Thiel decided to work with Musk, despite their initial differences. It’s easier to monopolise the bigger you are or the more targeted your audience.


5. Last Mover Advantage

There are two important time periods in the evolution of an emerging market for creating an effective monopoly; the first mover, and the last mover.

Thiel placed weight on understanding the proper business valuation process (and how to differentiate valid valuations compared to inflated valuations).

The equation for the value of a business today is the value of earnings in the future. Here is an example using the previous definition.

Twitter vs New York Times
Twitter $24Bn valuation (2013 IPO) = 12 * NYT market cap

Why does a new company surpass a veteran institution?
  1. Twitter is generating more cash flow (not even profit at times), and
  2. Twitter holds the monopoly of the future while publishing houses are failing to evolve effectively (improve or invent: “Anything You Want”).

So what exactly makes monopolies so successful? Typically, monopolies share some combination of four beneficial characteristics:

What defines a monopoly?
  1. Proprietary technology They have a technological advantage, their proprietary technology works much better than anyone else's - usually at least 10 times better. Google's search algorithms, for example are much faster and have better predictive power than anyone else's which makes it very difficult for a competitor to supplant them.
  2. Network effect (start with a hyper-niche market. If you think its too big it is). Monopolies enjoy network effects, meaning the more people are using their product, the more useful it is. An example is, Facebook wouldn't be very useful if none of your friends where signed up. What makes it valuable to you is the fact that many of the people in your network can be found there. This means that newcomers face an uphill battle when trying to lure customers away from monopolies with broad existing customer-bases.
  3. The economy of scale (SaaS vs employee labor-intensive). Monopolies benefit from economies of scale: cost savings gained by producing something on a large scale instead of a small one. Say you own a bakery and have a fixed costs like rent, heating and electricity totalling $1000. In this bakery, you can product between 1 and 10,000 buns a month, while the fixed costs remain the same. The more buns you sell, the more you can spread out those fixed costs meaning that the effective cost incurred per bun is less. Since monopolies are the largest producers in the their industry, economies of scale allow them to offer customers more attractive prices than newcomers, further strengthening their position. 
  4. Excellent Branding (Apple Branding to stay continual trend). Monopolies often have strong brands that can't be replicated. Apple, for example is the strongest tech brand in existence. While many other companies have tried to emulate its sleekly designed products and store, they just haven't seen the same level of success because they lack Apple's powerful brand.

How can we build a monopoly?
  1. Actively attempt to seek a hyper-niche target market that has little to no competitors. Serve them, and do it well (all that matters == customer: “Anything You Want”),
  2. Once you have dominated the market expands to the nearest adjacent market. Similar to Amazon selling CDs, DVDs then everything else,
  3. Do not disrupt current giants. PayPal worked with Visa. Everyone won, and
  4. Attempt to make the last great development in a specific market and reap all the benefits of a mature ecosystem.


6. You Are Not a Lottery Ticket

Can you control your future?

On the rare possibility that you are able to truly know the future with extreme accuracy then you may be able to control it. However, the reality is the future is random and uncertain. So don’t attempt to master it.

Thiel draws a graph to help illustrate the outcome of the future; better or worse.

  1. Indefinite pessimism: Since the 70s most of Europe forfeited authority to join forces without proper structure and order. The inevitable crash is indefinite so they ensue into a vacation mania.
  2. Definite pessimism: Economic growth is not quick enough for China. The rich place money internationally, and the poor preparation for the definite inevitable (soon). Not sustainable growth.
  3. Definite optimism: The Western world before the 70s. Major milestones were executed: Empire State Building, Panama Canal, Apollo program.
  4. Indefinite optimism: Effortless progress creates entitlement. Wealth accumulation overshadowed engineering innovation.

Thiel argues that to be successful one (a company) should not practice the development of a mediocre skillset and call it “well-rounded”. Rather focus, like the definite optimist, on one particular interest and dominate, build your monopoly.


7. Follow the Money

The 80/20 rule is applicable for startup success.

The Pareto principle is evident when observing the money trail. Venture capitalist aims to profit from companies in round series funding. Yet few companies achieve exponential growth. Most fail while few essentially breakeven.


8. Secrets

This chapter talks about the elusive topics of hidden secrets that need discovering. In today's high-tech world it's tempting to think that there's no more room for vertical progress or that there aren't any new ideas to be had. But this is a dangerous misconception that can keep you from being successful. In face, the world still has plenty of secrets - that is, things that are important by which most people don't know about or agree with. This makes them hard - but not impossible to discover. Often, the secrets are so deeply embedded in society that it might take generations to discover them. Just consider slavery which  a few centuries ago, was a common socially acceptable phenomenon. To put it differently, back then, the fact that slavery is wrong was by and large a secret.

For tech companies, the best secret is to have better technology than their competitors because it can make their position as market leaders unassailable. You need to find and chase thee kinds of secrets otherwise you'll just be another provider of horizontal progress offering conventional products in a competitive market.


What happens when a company stops believing in secrets?

Here is what happens to a company that stops believing in secrets. The case of Hewlett-Packard demonstrates the importance of having better technology. In the 1990s, the company had the best technology and used it to bring out one innovative product after the other, such as an affordable colour printer and an all-in-one printer, copier and fax machine - a truly wild idea at the time. But when the company stopped chasing secrets and inventing new products in the 2000s, it lost half its market value.
  1. 1990 company worth $9Bn
  2. 2000 after a decade of inventions (first affordable color printer, first super-portable laptops) worth $135Bn
  3. 2005 worth $70Bn (failed merge with Compaq, failed consulting/support shops)
  4. 2012 worth $23Bn as a result of an abandoned search for technological secrets.

The emphasis of this section is not to have secrets and hide or protect them from others, like some sort of IP. Rather, a company hoping to change the world is a company that will have secrets that once revealed will revolutionise a whole industry, advancing the movement towards an optimistic future.

Every great business is built around a secret that’s hidden from the outside such as inner workings of Google’s PageRank algorithm, Apple iPhone in 2007, etc…


9. Foundations

We tend to think of monopolies as behemoths towering over their competitors but of course, they don't start out that way. Building a successful monopoly takes time. This is especially true when it comes to profits. It can take years for a start-up to become profitable. But even if the company doesn't initially make profits it can still have value because value is determined by the profits it will make over its entire lifespan. PayPal is a case in point: in 2001, it wasn't making any profits. The calculated value of the company back then, most of it came from profits that were expected to come in more than ten years later. The lesson here is that you can't expect to be top dog in your business from the get-go. You need to be prepared to stick around for the long run. That's what will make you profitable.

How can you make your start-up a profitable monopoly? 

You need to start small and then expand bit by bit. You don't need to be the very best in every business, just your business. It's important to define your market as narrowly and specifically as possible. That'll make it easier for you to become its dominant player. After you've obtained a monopoly in this niche you can move on the next broader market. From the very beginning Amazon founder Jeff Bezos had the ultimate goal of becoming the world's greatest online retailed but he started much more narrowly selling nothing but books. Only after Amazon conquered the book market did it expand to other categories likes CDs and videos, and from there to other products. So contrary to what many think, Amazon' success hardly happened overnight.

Every company needs to lay a solid foundation to survive in the long run so when you start out on the long road of building up a business, the first days are absolutely crucial. 

The first key component in this foundation is finding the right people. Typically, start-ups are so so small that every single person on the team plays an important role. That's why before making an investment in a company, Thiel not only makes it a point to analyse the skills and vision of the people involved but also their personal connections. He's seen firsthand what weak personal ties can do to a team. Before co-founding PayPal with Luke Nosel, Thiel had invested in a company that Nosel had started with someone he barely knew. Eventually, their personal differences took the whole venture down along with Thiel's investment.

Another key factor in a strong foundation is ensuring that the different interests of the various company owners are balanced. After all, the founders and investors may have very different interests, but the company shouldn’t have to suffer from such misalignments. For example, the founders of the company may wish to develop their products patiently, whereas the board of directors usually wants to bring in profits as soon as possible. While these interests aren’t necessarily mutually exclusive, they can sometimes cause conflict, so it’s crucial to define a way of resolving such conflicts early on.

Finally, start-ups should also try to instill a strong culture in their teams because it helps everyone work effectively together. Company culture doesn’t consist merely in the perks you offer to your employees, like a pool table and a soda machine, but rather the relationships that people have. A good example of a strong company culture could be seen at Paypal, where the team was so close that many of them went on to start new companies together later.

The complementary personalities and skill sets allow for the elixir of success. Thiel stresses the importance of the co-founder’s compatibility.
  1. Ownership: Who legally owns a company’s equity? (founders, employees, investors)
  2. Possession: Who actually runs the company on a daily basis? (managers)
  3. Control: Who formally governs the company affairs? (board of directors which includes founders)

He talks about the appeal of having fewer heads on the board. Public companies are mandated to have a minimum amount but Thiel often prefers to have a board of 3.

Thiel uses another easy analogy for startup culture. You are either on the bus or off the bus. An individual who prioritises the drawing of salary over the positive contribution to the growth of the value of the company’s equity is an individual who is seeking to extract value otherwise.

The association with the value being given by a cash salary creates short term thinking with an employee. Drawing a high salary as a CEO creates the concept of attachment towards the title as it is correlated with such money (wrong mindset) and also promotes other employees to desire such payment (wrong mindset). The goal is for a company to proportionally give the right amount of equity to promote long term thinking and incentivize the employee to build value with the future in mind and the right amount of cash salary to keep the immediate now satisfied (basic needs + Lil extra).



10. The Mechanics of Mafia

The purpose of this chapter is to create and foster a strong culture within the companies ecosystem. Company culture is similar to a cult, minus the overzealous dogmatism.

The 4 integral dimensions used to construct an effective company culture.
  1. Imagery: Using branded clothing, merch, stickers and other miscellaneous items/events help show others in your company that you belong in the same tribe and shows commitment,
  2. Slogans: Slogans, catch-phrases, and idioms are great tools to build strong relations among members of the team. Think also of a group focused exercise where you may participate in a saying or exercise in unisons to trigger that hive mentality,
  3. Advocacy: This is essentially advocating and broadcasting the main problem you aim to focus on tackling (usually mission), in addition to philanthropic-like activities, and
  4. Obsession: Find like-minded people — simple. Use active employees to recruit other like-minded people who are equally obsessed with solving the same problem as you.

The goal is to create and foster a strong company culture. Cult participants are usually misinformed fanatics. We want fanatics who are enthusiastic about our problems and mission. You don’t mind others calling you a mafia of sorts either.


11. If You Build It, Will They Come?

When most people hear the word “salesperson,” they think of a man in a cheap suit going door to door hawking vacuum cleaners: not a very flattering image.But in business, sales is a vital necessity. Many people, especially those enthusiastic about technology, would prefer to focus on product innovation, but innovative products are worthless unless they’re sold. And there’s no product on earth that people will buy without you selling it.

To sell your product effectively, you need good distribution. This not only includes your sales channels but also the effort and organization it takes to sell your products.To leverage your distribution most effectively, you always need to consider the potential of each client before deciding how much effort you’re willing to put into making the sale.For example, Thiel co-founded the data analytics company Palantir, where a single closed sale usually brings in several million dollars. Here, the CEO has to personally do the selling, because clients spending such sums expect a certain amount of personal involvement from the seller’s executives.In another business where single sales deals only bring in a few hundred thousand dollars apiece, it wouldn’t be an efficient use of time for the highly paid CEO. However, the CEO would still need a solid sales team to represent the company. Another way to enhance your distribution is to use strategies. Many of us dislike salespeople because we associate selling with manipulation, and no one likes to be manipulated. But while certain obvious manipulation techniques may not be successful in sales, there are certain strategies that will work on anyone – so you should make them work for you.

Often the trope suggests that a product should sell itself. However, Thiel argues that the delivery system for a company’s service or good is of equal importance to the product itself. Thiel gives a brief lesson on sales. If the CLV (Customer Lifetime Value) is greater than the CAC (Customer Acquire Cost) then you can learn how to sell with profit. The more expensive the product, the greater the sales costs then the more important to the sale.


Some products may require a team of salesmen who make sales look effortless to the programmers (2 hours lunches, etc). Other products may be less than $1,000 where they simply can use orthodox advertising. Sometimes the product may be such a big sale that the CEO or other officers may need to participate directly in the sale of the product. Regardless, the distribution system must be considered a fundamental aspect of a successful business.

Then there are dead zones. The target is usually SMEs (small-medium enterprise, B2B) and they require unique marketing. Look around, if you don’t see a salesperson, you’re the salesperson



12. Man and Machine

This chapter can be summarised as the computer complimenting humans as a tool of technology vs robots taking over the workforce. There is a great fear that robots will inevitably make humans ineffective. Thiel argues that this is not the case. Instead, he believes that computers will empower the human race rather than make them obsolete.



Thiel offers an example of the complementary relationship computers will have with robots.
  1. In the summer of 2000 Paypal was losing $10Mn/Mo because of credit card fraud. It was nearly impossible for the human resources to flag and resolve every single transaction with brute force alone,
  2. Thiel hired an elite team mathematicians to solve the problem algorithmically,
  3. This solution worked, temporarily,
  4. The latest solution was to assemble a highly specialized team of human analysts to review most suspicious transactions flagged by the algorithm,
  5. This hybrid system was named “Igor” after the Russian fraudster who claimed he will never be caught, and
  6. Paypal records first profit in 2002 vs quarterly loss of $29.3Mn one year before.

This hybrid solution has been used by the FBI for detecting fraud and later inspired the creation of Palantir. The system uses sophisticated AI/ML to help create high-risk and high-probability flag cases to be reviewed by the human analyst in greater detail, “keeping the human in the loop”.



13. Seeing Green

Between 2005 and 2009, an investment bubble was at its height in Silicon Valley. The underlying industry was clean technology, or cleantech, which encompasses products and services that promote things like the sustainable use of natural resources and the use of renewable energy sources. Thousands of companies had been started in the industry, financed by over $50 billion in investments. Unfortunately, since then many companies have failed, taking the investors’ money with them. So why did they fail? Because they simply didn’t analyse and understand the market opportunity.

To avoid this, every company should ask seven crucial questions about the market and itself:
  1. The Engineering question: Can you create breakthrough technology instead of incremental improvements? Cleantech companies didn’t understand that to prevail over established energy companies, they needed technology ten times better than theirs, not just slightly better.
  2. The Timing Question: Is now the right time to start your particular business? Some cleantech companies believed the industry was on the cusp of a period of rapid, exponential advances in, for example, solar-panel technology, and that this would allow them to flourish. But in fact clean technology has advanced slowly and linearly.
  3. The monopoly question: Are starting with a big share from a small market? Cleantech companies were part of the trillion-dollar energy industry, which meant dog-eat-dog competition for even small shares of the market. A smaller market where you have a good chance of building a monopoly fast is a much better bet.
  4. The people question: Do you have the right team? Cleantech companies were often run by non-technical executives who had no idea how to build great products.
  5. The distribution question: Do you have a way to deliver your product? Many cleantech companies, like electric vehicle start-up Better Place, believed their technology was so good that they didn’t need proper distribution channels. After spending $800 million of investors’ money and selling just 1,000 cars, it ended up filing for bankruptcy.
  6. The durability question: Will your market position be defensible 10 and 20 years into the future? Many solar-technology companies were surprised when Chinese companies began churning out similar products at a much lower cost. This should have been entirely foreseeable from the outset.
  7. The secret question: Have you identified a unique opportunity that others don’t see? At the time, everyone agreed cleantech was going to be huge. But truly successful companies have secrets: they spot opportunities not everyone can see.

Innovative companies like Tesla typically have answers to almost all of these key questions, whereas most cleantech companies had zero. This is why they failed.


Thiel states, “One of the few cleantech companies that have found success is Tesla. This is because they got all of the basic issues right. This shows that the problem was never with the idea of cleantech by itself, rather the problem was how most of the cleantech startups ran their firms.”

Many social-driven businesses fail to differentiate themselves from other entities and products and place emphasis on the wrong goal: “To do something good”. Set after the goal to do something different instead (maybe as a monopoly on a smaller scale). The success may come to you similar to it did to Musk with Tesla.



14. The Founder's Paradox

In the last chapter, Thiel draws up some interesting graphs that suggests that the average person falls in the middle of the spectrum and also believes that the inverse of the function is true for the founders. He is basically suggesting that founders tend to have “extreme” qualities. 

Across the board, founders tend to be slightly strange, especially founders of successful companies. Whether they’ve been a bit off since birth or have become that way to emulate past great founders, almost every successful founder is somewhat . . . unusual. Consider Paypal’s founding team: almost every member was a bit of an oddball. In fact, as teenagers, four of them even had the unusual hobby of building bombs! This kind of originality is important because founders do far more than just start a company: they give it a vision. And this contribution is indispensable; no matter how refined a company’s management strategies are, it must have a vision to pursue.

Think about Steve Jobs’s return to Apple in 1997. He’d been been kicked out over a decade earlier, and, in 2001, he launched the iPod, which analysts brushed off as nothing but a cool gadget for Mac users. But the true genius of Jobs’s plan was revealed when Apple launched the iPhone and iPad, creating a family of Apple’s “post-PC devices” distinguished by their sleek looks and exclusive features. Jobs had effectively made Apple the most valuable company in the world by following a carefully thought-out plan based on his vision. As this success story shows, even a strong company, if it wants to perform at the highest level, needs the originality and vision of its founder.




He talks roughly about some philosophy about believing strongly in your own abilities. Basically, be humble that's all.


Conclusion: Stagnation or Singularity?

Debating the contents of the future with high-level accuracy is a feeble task. However, we can anticipate four likely scenarios.

Four scenarios for the future:
  1. Recurrent collapse (likely considering the ebb flow cycle as seen in history: William Durant),
  2. Plateau (technological stagnation),
  3. Extinction (man-made or natural), and
  4. Takeoff (essentially hybrid where technology pushes advancement forward exponentially).

So, effectively we can decide how to shape the future. How will you do your part?




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